All Eyes on Moscow

The US economy received a morale boost yesterday after Moody’s affirmed its “AAA” credit rating and raised its outlook to “Stable” from “Negative”. However, with the situation across the globe, especially in Europe and China, offering little cheer, market attention will shift to the G20 meeting commencing today in Moscow for gauging how the leaders plan to drive global economic growth. Additionally, events unfolding in Portugal’s political arena will also grab market focus. Meanwhile, at home, data just out has revealed that public sector borrowings grew at a faster than expected pace for June. For the week ahead, the UK second quarter GDP data remains the near term trend setter for Sterling.

Pound Sterling – UK Markets

Despite simmering inflation, the retail sector remains resilient as yesterday’s data revealed that annual retail sales rose more than anticipated for June, helped by department store offers. Data just out has revealed that the UK government’s borrowing rose for June. However, Sterling has limited its downside risks against the Euro and the US Dollar in today’s trading session, as buoyant data released earlier this week continued to strengthen belief that the British economy is treading the path to recovery. With an eventful week coming to an end, markets look forward to developments taking place in the G20 meeting commencing later today for further cues to risk appetite. In the forthcoming week, all eyes will undoubtedly remain focused on the second quarter UK GDP data and will prove crucial for the near term dynamics of Sterling against the majors.

US Dollar – US Markets

The US Dollar oscillated between gains and losses against the single currency in yesterday’s trading session. Data released yesterday revealed that the number of people claiming jobless benefits declined more than anticipated last week while the manufacturing barometer of the Philadelphia region unexpectedly rose for July. In the midst of a modest recovery in the economy as suggested by the recent positive data, Moody’s affirmed its “AAA” credit rating for the US and raised its outlook to “Stable” from “Negative” citing a decline in the nation’s budget deficit. With US economic fundamentals shaping up well recently, it will be interesting to watch the Fed’s next move pertaining to the tapering of QE3. The Fed Chairman reiterated his stance yesterday before the Senate that a tapering of the current stimulus measures will depend on the performance of the economy. In today’ trading session, the US Dollar is trading marginally under pressure against the majors. With little on the US economic calendar today, news flows emanating from the G20 meeting and Portugal’s political arena could sway market sentiment going forward. Meanwhile, a raft of regional indices and housing sector data due next week will be gauged for further insights into the pace of the nation’s recovery.

Euro – European Markets

After trading in a fairly tight range yesterday, the Euro has moved marginally higher against the US Dollar in today’s trading session. Despite peripheral economies witnessing uncertainty on the political front, Spain’s borrowing costs fell at a long term bond auction held yesterday, as investors shrugged off fears that the country could face a credit rating downgrade as witnessed by Italy and France recently. Meanwhile, with the deadline for Portugal’s salvation pact approaching, markets will keenly eye developments taking place in the region to ascertain how the debt laden nation plans to meet its bailout conditions. The G20 meeting commencing today in Moscow will also gain market attention wherein discussions regarding the fragile global economic recovery and the recent market volatility will take centre stage. Markets will look forward to manufacturing and services PMI releases across Europe due next week for further cues to risk appetite.

Other Currencies – Highlights

The Japanese Yen has strengthened against the Euro and the US Dollar in today’s trading session ahead of Japan's upper house elections scheduled on 21 July 2013. A win for the Prime Minister, Shinzo Abe’s party, which looks most likely, will give them additional power to pursue aggressive reflationary policies. Additionally, developments taking place in the G20 meeting commencing later today in Moscow will attract traders’ attention during the weekend. Any endorsement from the leaders in support of the Bank of Japan’s efforts in ending a long bout of deflation could prove decisive for the Japanese Yen’s movement against the majors. Going forward, trade balance as well as consumer price inflation data due next week will be keenly watched which is expected to shed light over the efficacy of the Bank of Japan’s unprecedented easing measures undertaken to end deflation and boost the economy.